-44-
additional facilities if petitioner increased its herd to 7,500
cows. We disagree. The existing facilities (including a milking
parlor that could accommodate 10,000 cows) needed to be
modernized or replaced, and petitioner planned to expand its herd
to 9,000 cows.
Respondent argues that most of the capital assets petitioner
bought during the years in issue were items that petitioner
bought each year, such as trucks, loaders, and refrigerators, and
were not assets bought as part of a capital expansion program.
Respondent argues that petitioner incorrectly counted this need
for funds both in its working capital calculations and in the
capital improvements category. We need not decide whether
petitioner included this need for funds both in the capital
improvements category and in the working capital category because
we have not separately considered petitioner's working capital
needs.
Petitioner's category one and two expenses projected for
equipment and construction were generally less than its actual
expenses for those purposes during those periods. Actual
expenses in category one exceeded projected expenses by $305,043
for 1987, $2,335 for 1988, and $447,859 for 1989. In category
two, actual expenses exceeded projected expenses by $355,194 for
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